Your One-Stop Guide to the Palestinian Funding Issue

The last few months have been head-spinning when it comes to following who is funding what in the West Bank and Gaza, and whether any of it is going to the Palestinian Authority. The U.S. and Israel have enacted different policies and the U.S. itself has overlapping positions, between the Taylor Force Act, the Trump administration’s freeze of all funding spent in the West Bank and Gaza while it conducts a review of the money that has already been appropriated, and the Knesset legislation passed Tuesday withholding money from the PA so long as it continue its payments to prisoners and families of terrorists. Since this web of American and Israeli laws and policies has the potential to be highly confusing, here is my effort at untangling the various threads.

Where the U.S. StandsThe U.S. spends money in the West Bank and Gaza in essentially three ways. The first is funneled through USAID to support infrastructure projects, humanitarian assistance, and democracy and good governance programs, and also to pay the PA’s Israeli creditors. Since 2014, not one dollar from this pool of funds has gone to the PA directly. This bucket of money comes from the Economic Support Fund (ESF), and this is the money that is subject to the Taylor Force Act restrictions on funds that directly benefit the PA so long as it continues to make payments to imprisoned terrorists or the families of dead terrorists. Taylor Force was passed in March, and the administration is currently in the process of determining which ESF projects meet the “directly benefits” definition, but it will almost certainly be expansive to the point of knocking out all of the ESF funding that doesn’t fall under the exceptions built into the law for the East Jerusalem hospital network, child vaccinations, and wastewater projects.

The second way the U.S. spends money is through security assistance that is used to train and equip the Palestinian Authority Security Forces. This money comes from the International Narcotics Control and Law Enforcement (INCLE) bucket, and is not subject to the Taylor Force Act restrictions. While only $35 million has been requested for this in the two most recent fiscal years, it is considered by nearly everyone to have been wildly successful in professionalizing the PASF and ensuring their continued cooperation with Israel, which is why there was no move to subject it to the Taylor Force Act’s “directly benefits” aid cutoff. It is also deemed by Israeli security officials to be a vital piece in maintaining quiet in the West Bank and keeping organized mass terrorism out of Israel’s cities.

The third way the U.S. spends money is by funding the United Nations Relief and Works Agency (UNRWA), which oversees Palestinian refugees and their descendants (who are considered to still maintain refugee status despite being third or even fourth generation). UNRWA operates the refugee camps in the West Bank and Gaza, which are outside the PA’s jurisdiction and hence UNRWA effectively serves as the government in operating schools and providing health care. After making a $65 million payment to UNRWA in January, the Trump administration froze the remainder of what it had pledged, and has not contributed any other money to UNRWA this year.

As I wrote about a couple of weeks ago, the Trump administration is undertaking a comprehensive review of aid to the West Bank and Gaza, and has frozen the money already allocated for fiscal year 2017 while the review is ongoing. There seems to be a widely-held misconception that the White House review is about the Taylor Force restrictions and how ESF funds should be distributed going forward, but this is only partially correct. The Trump administration review and concurrent freeze applies to everything, security assistance included. It goes beyond Taylor Force, beyond the “directly benefits” directive in the legislation, and beyond economic assistance. As of this writing, the U.S. is not spending any money in the West Bank and Gaza, irrespective of what pool it comes from and irrespective of which entity distributes and uses the funds.

Where Israel StandsOn Monday, the Knesset passed legislation that had been in the works for months in its own effort to deal with Palestinian prisoner and terrorism payments. It has been described as Israel’s version of the Taylor Force Act, but this is inaccurate because it differs in two important ways.

The new Knesset law is designed to replicate the policy that the U.S. had in place before the Taylor Force Act. Like previous American policy, the Israeli law mandates deducting the amount paid to prisoners and families of terrorists from the overall amount of tax revenue that Israel collects on the PA’s behalf, and then transferring the remainder. In 2017, the PA payments totaled $358 million, and Israel collects around $1.5 billion in annual taxes for the PA, so had this law been on the books last year, Israel would have subtracted $358 million from the total taxes it collected and transferred the remaining approximately $1.15 billion to the PA. This is what U.S. law was before the Taylor Force Act, where the U.S. deducted the prisoner and terrorism payment amount from what it allocated for economic assistance to the West Bank and Gaza, so Israel is just now catching up to where the U.S. was. Under Taylor Force, if even one dollar gets spent on prisoner and terrorism payments, then rather than deduct the equivalent amount, the entire pool of money that directly benefits the PA is withheld. In this sense, the U.S. now treats the PA far more stringently than does Israel.

But in another sense, what Israel is now doing hits the PA a lot harder. American funds have not gone to the PA directly since 2014; the money that Taylor Force impacts, and the larger pool of money that the White House has now frozen, is spent by the U.S. in the West Bank and Gaza but not transferred to the PA at any point. Israel, however, does transfer the tax revenues to the PA directly, and so withholding any part of it hurts the PA in a more tangible way. The PA budget for 2018 is $5 billion with revenues of $3.8 billion (the remainder of the budget is foreign aid and deficit spending), so losing nearly ten percent of the collected revenue is an enormous blow. It explains the furious PA reaction to the new Knesset legislation, though ultimately it is unlikely to result in anything other than PA bloviating.

Jared Kushner and Jason Greenblatt have reportedly been trying to raise money all over the region in order to alleviate humanitarian conditions in Gaza, while UN Special Coordinator for the Middle East Process Nickolay Mladenov has been doing all he can to figure out a way to fix the Gaza crisis by honing in on the most critical projects and putting a precise price tag on them. This means that the funding situation, which has already been whiplash-inducing, almost certainly will be upended yet again in the next few months, and that is before one factors in the end result of the Trump administration’s comprehensive aid review. But as of now, the one sentence summary is that the U.S. is spending no money in a way that hurts the PA but isn’t fatal to it, while Israel is spending money but cutting it back in a way that damages the PA in a more direct manner.

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